Convertible bonds are a type of debt security that allows investors to convert their bonds into a predetermined number of shares of the issuing company's stock. This feature provides the potential for capital appreciation if the company's stock performs well, making them attractive to investors who want both fixed income and equity exposure. These bonds typically offer lower interest rates compared to regular bonds because of the added conversion option. Investors receive regular interest payments until they decide to convert their bonds, balancing the benefits of fixed income with the opportunity for growth in equity markets.